Business, Compliance

Taking money out as a buyback: the rule changed again in 2026

You may have heard a buyback became a dividend in 2024. That's already outdated. The rule flipped again from April 2026, and this time the trap is the word "promoter."

You own an Indian company and want to take profit out as an NRI shareholder. Whatever you last heard about buyback tax, dividend or capital gains, is probably the wrong version. The rule has changed twice in two years, and the current one adds a tax that catches almost every founder who never thought of themselves as a "promoter."

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Last reviewed: 5 September 20265 min readReviewed by Preetesh Maloo, CA

The short answer

For any buyback from 1 April 2026, the tax is back to ordinary capital gains, not a dividend. But if you're a "promoter", and for an unlisted company that means holding more than 10% of it, directly or indirectly, you also pay an additional buyback tax on top, plus a 12% surcharge on that additional tax. A practising CA works out your exact effective rate, but it lands well above ordinary capital gains. Most NRI founders and majority owners clear that 10% line easily and don't realise they qualify.

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Related situations

Three regimes in two years, know which one applies to your buyback

Before 1 October 2024, the company paid a flat buyback tax of roughly 23.3% and you kept the rest. From 1 October 2024, that flipped: the company paid nothing, and your entire proceeds were taxed as a dividend in your hands. From 1 April 2026, it changed again: buyback proceeds are capital gains once more, your original cost is deductible as normal, but a promoter now carries an extra tax the earlier two regimes never had.

	Before Oct 2024	Oct 2024 to Mar 2026	From April 2026
Who's taxed	Company, flat ~23.3%	You, as a dividend	You, as capital gains
Your original cost	Deducted normally	Not deductible	Deducted normally again
Promoter add-on	None	None	Yes, additional tax + 12% surcharge on it

If your last advice on this is more than a few months old, it's describing a rule that no longer applies.

Are you a "promoter"? The 10% test catches almost every founder

"Promoter" sounds like it means someone actively running a listed company's IPO roadshow. For an unlisted company, and every company this vertical serves is unlisted, it means something much broader: anyone who fits the Companies Act's own definition (Section 2(69)), or simply anyone holding more than 10% of the company's equity, directly or indirectly.

An NRI who founded the company, or who owns half of a family business with a sibling, clears that line without a second thought. The additional tax isn't aimed at boardroom insiders in the way the word suggests, it's aimed at anyone with meaningful skin in the game, and that's most of the people this page is for.

What goes wrong without a CA

Two mistakes are already showing up. The first is running on last year's advice: assuming the buyback is still taxed as a dividend, when that rule ended in March 2026. The second is assuming the promoter tax doesn't apply because "I'm not a promoter," without ever checking the 10% test. Either mistake means the actual tax bill lands well above what was budgeted for, after the money has already moved.

What's involved

What the CA actually does

1
We confirm your promoter status and the current-law tax
We check your actual shareholding against the 10% test, then compute the base capital gains tax plus the additional promoter tax if it applies, using the rules in force today, not a rule that changed in the last two years.
2
We model buyback against dividend for your real numbers
With the promoter tax back in the picture, a plain dividend can once again be cheaper for some NRI owners. We run both ways on your actual holding and cash need before you decide.
3
We get the TDS right at source
We confirm the company deducts under Section 195 at the correct rate for a capital-gains payment, your treaty rate with TRC where it applies, not a rate carried over from either earlier regime.

What to have ready

Documents you'll typically need

The buyback offer document or board resolution
Your original share subscription or purchase records (cost of acquisition)
Proof of your shareholding percentage, to confirm whether the 10% promoter test applies
Tax Residency Certificate, for the treaty rate on the capital gain

Your country of tax residence can change the rate

India's DTAA with your country of tax residence sets the withholding rate on dividends, capital gains and technical or professional fees leaving India, and that rate differs by country. Set your country below to check the applicable treaty rate, or compare all 46 countries.

References on this page

Finance Act 2026: buyback proceeds taxed as capital gains again from 1 April 2026, reversing the 1 October 2024 dividend treatment
Promoter defined, for an unlisted company, under Companies Act Section 2(69), or any shareholder holding more than 10% of its equity, directly or indirectly
Section 69(2)(b), Income-tax Act 2025: the additional buyback tax on promoters, plus a 12% surcharge on that additional tax
Section 112 (Section 197 from FY 2026-27): long-term capital gains tax on unlisted shares, the base rate before any promoter add-on
Section 195 (Section 393(2) from FY 2026-27): TDS on the payment to a non-resident shareholder

Frequently asked questions

Common questions

Capital gains, for any buyback from 1 April 2026 onward. The dividend treatment only applied between 1 October 2024 and 31 March 2026. If you're relying on advice from that window, it's already out of date.

For an unlisted company, it's the Companies Act's own definition, or simply holding more than 10% of the company's equity, directly or indirectly. It has nothing to do with whether you personally run the business day to day. Most NRI founders and majority family owners qualify without realising it.

An additional tax on top of the ordinary capital gains computation, plus a 12% surcharge on that additional tax, whether you hold the shares personally or through a domestic company. The exact effective rate depends on your holding period and structure, worth confirming for your specific numbers before the company approves the payout.

Yes. Since the buyback is capital gains again, your cost of acquisition is deducted normally against the sale proceeds, unlike the October 2024 to March 2026 dividend window when it wasn't deductible at all.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

Long-term holding period: all other assets including immovable property

Right now: 24 months for ALL assets other than listed securities

Where it works differently

Unlisted shares transferred on or after 23 July 2024: 24 months, down from 36.; Finance (No. 2) Act 2024 rationalised every non-listed asset to 24 months.
The asset was inherited: The previous owner's holding period is added.; Explanation 1(b) to s.2(42A), read with s.49(1).
The transfer is a slump sale under s.50B: The 36-month long-term line is retained, not the 24 months that applies elsewhere.; s.50B was not rationalised by the Finance (No. 2) Act 2024, so the 36-month line survives there alone.

Commonly got wrong

Unlisted shares are long-term after 36 months. True only for transfers up to 22 July 2024. It is 24 months from 23 July 2024.State the transfer date, then the period.
Debt mutual funds become long-term after 36 months. Specified mutual funds bought on or after 1 April 2023 are always short-term under s.50AA, regardless of holding period.Specified mutual funds bought on or after 1 April 2023 are always short-term under s.50AA.

If this matched your situation, these go further

Setting up an Indian private limited company as an NRI founder Selling your Indian business as a going concern, and the tax on it Your founders' agreement has a buyback clause. FEMA has an opinion on the price

Planning a buyback from your Indian company?

Tell us your shareholding and the amount. A practising CA will confirm whether the promoter tax applies to you and run the numbers against a dividend, on a free call, no obligation.

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